Utility Week

UTILITY WEEK | 7TH - 13TH DECEMBER 2018 | 9 Policy & Regulation This week Network users face 'line rental' charges Ofgem suggests fixed charges on consumers are best way to recover residual network costs Ofgem has announced plans to recover residual electricity network costs – about £4 billion a year – through fixed charges on consumers. The regulator compared the charges to the line rental arrangements for telephones, saying they would lower energy bills for most households and ensure individual network users pay their fair share towards the sunk costs of the existing power grid. Ofgem has proposed the reforms as part of its signifi- cant code review, which examines both residual network charges and embedded benefits. Unlike forward-looking charges, residual charges are intended to fund investment in new capacity, they are not designed to reflect users' impact on costs or send price signals to use the network in a particular way. The charges are levied on both generation and demand, mainly the latter. On the demand side, they are applied as volumetric consumption and peak demand charges. However, Ofgem says these arrangements let network users reduce their exposure to residual charges with on-site generation, demand-side response or storage, shiing the burden on to others. Also, it says they result in inefficient investment decisions. The regulator launched a significant code review in August 2017, and the following November outlined potential mechanisms for allocating residual charges. Ofgem has now revealed fixed charges as its preferred option. Under this model, consumers would be split into segments with corresponding fixed charges per user. TG WATER NPS paves way for new infrastructure The South East's water compa- nies have been encouraged by the government to work together more closely to boost regional supply in the updated planning blueprint for the sector. The government has pub- lished its dra national policy statement (NPS) on water, pav- ing the way for a new generation of reservoirs and water transfers between regions. The NPS says the government expects neighbouring water com- panies to work together when planning resources, pointing as an example to the development of the Water Resources in the South East group of regional suppliers. It says this group may need to focus on more strate- gic transfer options to address longer-term pressures. The National Infrastructure Commission recently said that at least 3,300 megalitres a day of extra capacity is needed by 2050 to maintain the current level of resilience. ENERGY RIIO2 plans to face greater scrutiny Ofgem is to hold its first public meetings to scrutinise network companies' business plans as part of the upcoming RIIO2 price control round. The regulator has announced it will hold a series of open hear- ings in the spring of 2020 once the RIIO2 price control plans for 2021-26 have been submitted. The gatherings will address questions on areas of contention raised by an independent panel set up to challenge the network companies' price control busi- ness plans. The panel will be chaired by Roger Witcomb, who led the Competition and Markets Authority's investigation into the GB energy market. The regulator wants the panel to challenge the network compa- nies on how consumers' needs are being considered as it is developing their business plans. ENERGY Ofgem to review industry codes The government and Ofgem have launched a major review of industry codes and governance to support the ongoing transfor- mation of the energy system. Ofgem has published a docu- ment outlining the terms of the review. According to the regula- tor, there is a "growing industry consensus" that the present arrangements, designed several decades ago, have become out- dated and a barrier to progress. The document says the cur- rent system is slow, "with even simple decisions taking many years", and reactive rather than forward-looking. Changes ensure users pay towards existing grid Political Agenda David Blackman "At some point, politicians have to level with voters" The split screen isn't used much in movies these days. But this week's news could helpfully deploy the retro device. On one side would be Sir David Attenborough pleading with delegates at the global warming summit in Poland. The other would show the protest- ers in Paris trashing France's equivalent of the Cenotaph last weekend as part of increasingly violent protests sparked by their government's decision to hike fuel duties. duty has been a toxic topic for our governments ever since the petrol pump blockades of 2000. And at some point, politi- cians have to level with voters about the difficult choices sur- rounding the decarbonisation of heat, which will probably involve ripping trusty gas boilers out of millions of homes. Best to start the conversa- tion soon to stop climate change becoming yet another dividing line in our increasingly frac- tured society. Emmanuel Macron has made tackling climate change a central plank of his eclectic policy plat- form. Only last week, he pledged to increase renewable power's share of electricity generation to 40 per cent by 2035, up from about a fih now. Macron's hopes of using cli- mate change to bolster France's global leadership credentials have been truly dented. And the scenes from Paris are bound to have given delegates at the Katowice summit pause for thought as they wrestle with the measures needed to implement the Paris agreement. The UK can't afford to be com- placent though. Increasing fuel

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